Can Defence Spending Make Poland Richer?

From Expansion to Strategy — Poland’s Defence Spending Today

In 2025 the budget for national defence was 186.6 billion PLN, which is around 28.6 billion more than in previous year. Defining a 18.1% increase in year to year spending. That expense is responsible for 4.7% of Poland’s GDP in 2025, constituting the most significant share among NATO’s members. As we can see the question here is no longer up to how much Poland needs to spend, but whether that spending is tightened to the country’s future potential. According to Ben Conigrave and Young-Hyun Shin from Organisation for Economic Co-operation and Development (OECD) defence spending increases the economy in the short run, but the long run pay-off is not always automatic. It only positively impacts a country’s growth in a longer period of time if it is based on developing supply and productive fields internally. Whenever expenses are made abroad it leaks stimulation of growth outside the borders — this phenomenon is nothing more than just donating capital to others which produce military equipment. Therefore, lasting economic benefits can be obtained by internal investment in channels like R&D, industrial upgrading, supply-chain development, and dual-use innovation. In Poland’s current position, the issue is no longer based on insufficient defence spending but rather on where exactly they are made. If defence funds are used to expand domestic industry and technological capabilities, they may strengthen long-term competitiveness. If not, they may remain only a costly short-term fiscal burden.

The Keynesian Argument

Keynesian economics, developed by John Maynard Keynes states that economic output is primarily defined by aggregate demand. This consists of consumption, investment, government spending and exports minus imports. It concludes that whenever private demand is insufficient, the injection of government spending can effectively stimulate the economy. According to the International Monetary Fund, Keynesian theory explains that during economic downturns, higher government spending can increase output and decrease unemployment by boosting demand. How does it work? Government expenses are revenues of firms. From that revenue businesses can finance salaries and purchases of materials. Wages earned by workers are effectively distributed across consumer spendings, which are another revenue of further and further firms. Therefore, total output rose more than initial capital injection by the government. The argument does not belong only to the theoretical framework. The ECB states that an increase in government spending can increase output through multiple different effects, nevertheless, the type of spending determines the size of the effect and the economic context. The ECB estimates that an increase equal to 1% of GDP can generate a two-year GDP multiplier of around 0.93 on average. The effect spreads across time rather than occurring as a single event in one full year. The OECD also states that public investment, which in our case is the flow of capital into the military industry, has a stronger multiplier effect than other forms of public expenditure). This is due to the fact that investment spending enforces growth of production capacity, which is a foundation of long-term economic growth. Hence, we again arrive at the conclusion that defence spending is going to positively impact economic growth in the short run, but its long lasting impact relies on where the investments are made.

The Hidden Costs of Import-Driven Rearmament

Having observed that devoting a higher portion of a country’s budget to military expenses can pay off, it is also crucial to focus on how to establish a positive long-term impact. The main issue in Poland’s current position is that the majority of its arms are imported. In the period between 2021-2025, around 47% of imports came from South Korea, and another 44% were from the United States (Notes from Poland, 2026). Therefore, not even 10% of this segment of expenses are domestic. Consequently, whenever investments are not made internally, it automatically redirects them to imports, and the keynesian multiplier no longer occurs. Afterwards, instead of rising demand for jobs and factories in the industry, we end up donating all of the above pros to the country that we buy from. Surely, when there is a desperate need to quickly arm, it is crucial to use all necessary forms of support, therefore economic growth should step out from the big picture. Nevertheless, this approach is far from a perfect solution, since import equals dependence on foreign supply and technology. Under Poland’s 2025 K2 deal, only 61 out of 180 units of Korean tanks are produced domestically. Purchase of foreign military equipment is not only a one time transaction, but it evaluates into a chain of after-sale dependence: training, servicing, repairs, spare parts, software updates, and sometimes ammunition or support vehicles. In combination, all these factors can lead to a situation where Poland’s operational readiness partly depends on decisions and capacities outside its own control.

Long-Term Contracts as a Tool of Defence Industrial Development

The European Commission announced that long-term demand visibility is the key condition for firms to ramp up production capacity (European Commission, 2025), in addition to NATO’s claim that the lack of long-term contracts leads to long-term capabilities becoming risky, discouraging further investments into this sector. To address this structural weakness, Poland should shift from a one time procurement strategy towards stable long-term internal domestic demand commitments. International experience strongly defends this approach. Firms exceed their production capabilities only when there is a credible promise of future demand and contracts will last over multiple years. For instance, in the United States, defence procurement programs worth 10 billion dollars annually, multi-layer procurement helps establish stable production, reduce costs, and support a strong domestic industrial base. Moreover, recent European policy discovered that without solid demand drivers, which are significant and long lasting orders, companies would not be eager to commit additional investments in developing production capabilities (European Commission, 2025). These findings led to the co-financing of up to 50% of industrial expansion in crucial defence sectors (European Commission, 2025). The mentioned examples are proof of the efficiency of the above policy. Poland should implement a multi-year framework contract, which guarantees purchase volumes, but more importantly, ensures that production will be run domestically, which will lead to development of the Polish military industry. Such initiatives will theoretically reduce investment risk, encourage companies to establish domestic production and stimulate job creation across the whole supply chain. Furthermore, by tightening foreign procurement towards local assembly, Poland could gain its own industrial capabilities and become more independent of external providers. In conclusion, the described approach will significantly contribute to Poland economic development over the extended period, rather than superficial one-time injection drained by significant imports.

On What Terms Should Poland Accept SAFE?

Poland should accept SAFE, but only if it maximizes industrial gains within Poland’s borders. SAFE offers up to €150 billion in EU loans, where Poland is set to receive €43.7 billion. However, an important point is that the cost of components originating outside the EU, EEA-EFTA states, and Ukraine cannot exceed 35% which allows that at least 65% of this amount must come from eligible area. In this context, Poland has to maximize its share among that European 65% threshold through local production and technology transfer. Otherwise, SAFE can generally improve Europe’s defence capabilities, all the while keeping Poland’s share in industrial and economic benefits strictly limited.

Conclusion

Poland’s defence spending can strengthen economic growth, but only if their structure focuses on industrial investment, rather than short-term procurement which might be drained by imports. Long-lasting payoff relies on whether it develops domestic technology, supply chains, and jobs. In the current position, the majority of expenses are made abroad which leads to import leakages, and high dependence on foreign supply chains together with the geopolitical situation. Therefore, the solution no longer lies on how much Poland spends, but rather on the structure of those expenditures. Long-term local production contracts, technology transfers, and stronger Polish presence within SAFE are crucial if defence policy, instead of being solely a security tool, might become a structured mechanism that would ensure economic growth across an extended timeframe.

by Tomasz Pyzik