Poland needs to focus on slowing the rapid rise of its public debt, the International Monetary Fund stated on Monday, warning of growing fiscal risks over the medium term.

The IMF noted that strong growth in Central Europe’s largest economy, fuelled by wage increases and expansive fiscal policies, has partly come at the cost of a deteriorating fiscal position, with Poland now running one of Europe’s largest budget deficits, Reuters reports.

"Staff now assesses Poland's risk of sovereign debt stress to be at medium compared to low in our previous assessment,” according to an IMF statement.

Furthermore, the IMF said Poland’s expanding deficit is mainly driven by a sharp rise in spending, which now matches levels seen in advanced European economies, while government revenues remain closer to those of other Central and Eastern European countries.

It added that Poland’s economic outlook is solid, with growth expected to pick up to 3.4% next year from 3.2% in 2025, supported by faster EU-funded investments. Nevertheless, the deficit is likely to decrease only slightly due to political stalemates.

“We see rising fiscal vulnerabilities over the medium term, despite a relatively strong growth outlook,” the IMF said.

“Arresting the rapid rise in public debt should be a priority. Specifically, we recommend a cumulative fiscal adjustment of 4% of GDP by 2030, which is 2% of GDP more than in our baseline projection,” it added.

In addition, the IMF noted that following its recommended fiscal measures, Poland’s medium-term deficit could be reduced to 3% of GDP, while public debt would stabilise at a “relatively high” 70% of output.

It also suggested that after 150 basis points of rate cuts this year, Poland’s central bank should think about slowing the pace of monetary easing.

“We would advocate a wait-and-see approach to allow time to observe incoming data and seeing sustained disinflation towards the target. If core inflation continues to moderate, further easing might be possible.”