For the fifth time in a row, the Supreme Audit Office of Poland has made a descriptive assessment of the Budget Act execution.
According to NIK the Council of Ministers’ report on the state budget execution for the period from 1 January to 31 December 2024 presents, in all significant aspects, reliable information and data on the level of revenues, expenditures, receivables and liabilities and deficit of the state budget.
At the same time, NIK positively evaluates directions of changes proposed by the Minister of Finance, aimed at restoring transparency of the state finance, giving adequate importance to financial planning and reporting by entities of the public finance sector, structuring public spending in terms of its legitimacy and effectiveness of pursuing responsible management of public debt, as well as reducing the scale of using off-budget funds.
NIK has once more highlighted that this is yet another time that the Budget Act and the Council of Ministers’ report on the state budget execution do not present full picture of activities which impact the bottom-line of the state budget and hence the condition of the state finances.
The total revenues of the state budget and the EU funds budget in 2024 reached PLN 677 billion and were a bit over 4% up than in 2023. A much higher increase was reported in case of combined expenditures of the two budgets.
They totalled PLN 899.5 billion and were over 22% higher than expenditures incurred a year before. The total deficit of the state budget and the EU funds budget in 2024 was PLN 222.5 billion. It needs to be noted, though, that in 2024 the extra pension payments (so-called thirteenth and fourteenth pensions) were included in the deficit. According to NIK this is a positive phenomenon as such measures are part of implementing the principles of openness and transparency of public finances.
In 2024, expenditures for servicing the State Treasury debt remained on a high level: nearly PLN 66 billion.
Further increase in net borrowing needs of the state budget was also observed. Those needs went up by over ⅓ against the year before, i.e. by nearly PLN 43 billion.
It needs to be underlined that neither the state budget expenditures nor the deficit covered all operations having impact on the condition of the state finances.
It means that the state’s financial economy in 2024 continued to be run largely outside the state budget and without adhering to the rigours relevant to this budget, and even outside the public finance sector.
NIK negatively evaluates the fact that since 2020 large-scale activities have been carried out which contribute to minimising the importance of the state budget as the most significant financial plan, set out in the Constitution of the Republic of Poland.
These activities violate fundamental budget principles, in particular the principles of unity, transparency and openness.
Yet another year in a row, a considerable part of public tasks has been financed outside the Budget Act.
In 2024, from the resources of funds serviced by BGK, tasks for over PLN 135 billion were financed which represented over 16% of the state budget expenditures and nearly 3.7% of the GDP.
The debt of funds serviced by Bank Gospodarstwa Krajowego as at the end of 2024 reached nearly PLN 350 billion which stands for an increase against the previous year by over ¼.
In 2024, as in previous years, selected entities were provided free of charge with Treasury securities. Their value amounted to PLN 24 billion, which is over PLN 2 billion more than in 2023. All in all, in 2020-2024 nearly PLN 118 million was transferred in that way.
The said operations resulted chiefly in lowering the position of the state budget. It should be emphasised, as it was in 2020-2023, that these operations not only distort the clarity of the public finance data but – most importantly – considerably limit the parliamentary and social control of the collection of some funds and spending them on public tasks.
On the other hand, NIK positively evaluates the government’s efforts which help reveal growing financial imbalance of the subsector of government institutions in the state budget and not – as in previous years – in off-budget institutions, which are not regularly controlled by the Parliament.
NIK points out at the same time that the general government deficit in 2024 reached almost PLN 240 billion and its relation to gross GDP was 6.6%, making it the second highest result in the European Union and maintaining the level comparable with the ratio of 2020 when the COVID-19 epidemic started.
For the third year in turn that relation exceeded the 3% threshold set for the EU countries. As a result, Poland was covered by the excessive deficit procedure in 2024.
In 2024, approx. 20% increase of public debt was reported, both in line with the national principles and the ones adopted by the EU. The public debt calculated in line with the domestic definition, i.e. the consolidated public debt against gross GDP was 44.3%, whereas the general government debt established in line with the EU principles was 55.3%. Thus, the difference between the volumes of these debts increased as well and at the end of 2024 it exceeded PLN 400 billion. The difference made up 11% of GDP and it resulted from the fact that the debt calculated in line with the domestic definition did not include the debt of funds located in Bank Gospodarstwa Krajowego and the debt due to the financial shield of Polski Fundusz Rozwoju S.A.
Liabilities from the sale of bonds by those entities as well as due to loans contracted by Bank Gospodarstwa Krajowego to implement public tasks at the end of 2024 totalled PLN 460 billion. It is worth noting that the volume of loans to finance expenditures of the National Road Fund and the Armed Forces Support Fund more than doubled in 2024.
It should be accentuated that the functioning of funds in Bank Gospodarstwa Krajowego not only violates the principles of public finance but also is economically ineffective. According to NIK estimates, the total costs of servicing bonds issued by BGK for the COVID-19 Prevention Fund, the Aid Fund and the Armed Forces Support Fund as well as bonds issued by Polski Fundusz Rozwoju S.A. to implement the state tasks in their entire maturity period, that is by 2054, will be over PLN 19 billion higher than the costs which the state budget would incur to finance these tasks with Treasury securities.
Also, it needs to be underlined that in line with the forecast in the Strategy for managing the debt of the public finance sector in 2025-2028, the relation of the public debt calculated in line with the EU principles to gross GDP will be higher than 60%. This poses a threat of exceeding the second – after the deficit – prudence threshold and may result in extended application of the excessive deficit procedure towards Poland and the need to implement additional remedial measures. Simultaneously, NIK positively evaluates the fact that the Strategy includes – for the first time – information about the debt of funds located in Bank Gospodarstwa Krajowego and the forecast of its servicing costs. This activity complies with the principle of openness and transparency of public finance.
It should be remembered that for many years NIK has highlighted the need to standardise the principles of presenting the consolidated public debt and the general government debt so that the value of the consolidated public debt reflects the actual indebtedness of the state.
The majority of audits of the state budget execution ended with a positive assessment. Nevertheless, in case of eight auditees the irregularities were so important that the execution of their financial plan was evaluated negatively.
As in three past years, the stabilising expenditure rule did not help restore financial balance of the state and did not represent a significant element of planning expenditures of the state budget. Also the spending reviews did not help strengthen this process.
In 2024, the percentage of the state budget and the EU budget spending planned in specific reserves was still high. It made up 14.5% of the planned expenditures of the state budget and the EU budget.
Despite the efforts taken to improve transparency of the process of using the general reserve, the process was not fully transparent. Part of funds from this reserve was still earmarked for tasks which did not result from urgent, unpredictable situations requiring immediate action.
Other significant irregularities concerned both the planning process and the Budget Act implementation.
NIK identified among others unjustified spending, including funds from budget reserves or granting subsidies without legal basis or in improper amounts. The total amount of irregularities found in audited samples exceeded PLN 13 billion.
These are only few examples of irregularities identified by NIK in the area of public funds management in 2024 and in previous years. The scale of NIK’s reservations about public finance management is still alarming. Therefore, NIK sustains the recommendations it has made in the past four years.
Maintaining the status quo carries a significant risk of further weakening of the importance of the Budget Act. In this situation remedial action needs to be taken without delay.
It is also worth noting that only 10% has been used from the funds received to date for the implementation of the National Recovery Plan, although the investment deadline is passing next year. Therefore, urgent and effective measures need to be taken also in this area to make sure the funds allocated to Poland are used properly.
It is the fourth year in a row when NIK has made a descriptive assessment of the execution of the monetary policy assumptions.
Despite a significant decrease in the average annual inflation rate compared to this rate in 2023, when it reached over 11%, in 2024 its average value was 3.6%. It means that the 2.5% level adopted in the Monetary Policy Assumptions for 2024 could not be maintained.
Another important issue is related to the fact that the Monetary Policy Council maintained interest rates in 2024 at an unchanged level from October 2023, despite the inflation drop in the first half of the year. As a result, real interest rates were positive throughout 2024, which in practice meant a tightening of monetary policy and was justified from the point of view of bringing the inflation down to the inflation target adopted by the Monetary Policy Council.
It should be noted that the tightening of monetary policy was not communicated in a clear-cut manner, and therefore the National Bank of Poland did not use the opportunity to reduce inflation expectations by means of this tool.
NIK stands in a position that taking into account the situation of the financial sector, the Monetary Policy Council should consider the legitimacy of maintaining the interest rate on the required reserve at the current, high level equal to the reference rate.
On 10 June this year, the Council of NIK got familiar with the Analysis of the implementation of the state budget and monetary policy assumptions in 2024 and passed a resolution in which it expressed its opinion on the discharge of the Council of Ministers for 2024.
The Council of NIK maintained its position presented in the two previous years with regard to taking measures aimed at restoring the state budget to its central position as defined in the Constitution of the Republic of Poland, along with specifying deadlines for their implementation.
In the opinion of the NIK Council, operations carried out in the subsector of government institutions which impact the volume of public debt should be included in the revenues and expenditures of the state budget.
The Council also requested that measures be taken to standardise the principles of presenting the debt of the general government sector with the consolidated public debt.
Considering the irregularities found in the area of planning, the Council also highlighted the need to increase the precision of planning funds in the state budget and the budget of European funds.
To sum up, NIK continues to negatively assess and will negatively assess actions which result in: lowering the position of the state budget, incurring higher costs of servicing debt generated by entities from outside the public finance sector, as well as excluding increasing amounts of state liabilities from the consolidated public debt, as a result of which the size of this debt ceases to reflect the actual indebtedness of the state.
Referring to the authority of the scientific community, it should be strongly emphasised that only the Budget Act is competent to determine the state revenues and expenditures, which, in accordance with the Constitution of the Republic of Poland, include all financial resources for public purposes. There cannot be any laws competing with budget laws in determining state finances. It also needs to be underscored that it is the government that runs the financial economy of the state, while maintaining proper control of the parliament, and not other entities, such as Bank Gospodarstwa Krajowego, even if they are authorised by ordinary laws.
