How Poland’s Stabilizing Expenditure Rule Builds Fiscal Buffers and Controls Debt

Poland’s Stabilizing Expenditure Rule (SER), designed by SGH Warsaw School of Economics, the Ministry of Finance, and the IMF, effectively restrains spending, builds fiscal buffers, and strengthens debt sustainability. Simulations show that under economic shocks, the SER consistently outperforms traditional EU rules by preventing procyclical cuts and stabilizing debt more quickly.

The IMF working paper, authored by researchers from the SGH Warsaw School of Economics, the Ministry of Finance of Poland, and the International Monetary Fund, examines Poland’s Stabilizing Expenditure Rule (SER) as a compelling example of modern fiscal discipline. Emerging in a European landscape shaped by decades of tightening fiscal governance, the SER stands out as a sophisticated national spending rule designed to restrain deficit bias, align expenditure with long-term growth trends, and build buffers for periods of economic stress. Introduced in 2015 and refined in 2023 and 2024, it has become one of Europe’s more complex numerical fiscal anchors, operating more restrictively than the EU’s Stability and Growth Pact (SGP) thresholds.

Engineering a Rule Inside an Econometric Model

A distinctive feature of the paper is the technical effort spent integrating the SER into the New Econometric Model of Public Finance (NEMPF). Unlike other fiscal rules, the SER determines the overall spending envelope from the top down, which conflicts with NEMPF’s bottom-up structure. To resolve this, the researchers constructed a hierarchy of expenditure adjustments: when the SER ceiling is binding, public investment is reduced first, followed by flexible current transfers and selected tax-related items. This mirrors real consolidation patterns observed in Poland, where investment has historically been the first casualty when governments tighten budgets. The authors note that the SER’s built-in correction mechanism, triggered when deficits or debt rise above risk thresholds, makes the rule more forward-looking than frameworks solely tied to compliance limits.

What Happens When the SER Is Enforced

The study’s simulations compare two regimes: strict application of the SER and a counterfactual scenario where only SGP limits apply. In the baseline scenario, the discipline imposed by the SER keeps deficits smaller and debt falling, while the NO-SER regime produces slower and weaker debt stabilization. Real GDP growth tracks a similar pattern in both regimes, demonstrating that tighter expenditure controls do not impair economic performance. The paper emphasizes the SER’s ability to prevent spending drift during periods of strong revenue growth, allowing Poland to accumulate buffers rather than expand expenditure commitments prematurely.

Stress Tests That Reveal the Rule’s Power

The analysis becomes most vivid under stress scenarios. In a simulated global recession, triggered by a sharp euro-area downturn, Poland’s export sector weakens, corporate profits fall, and fiscal revenues decline sharply. Under the SER, the government enters the shock with pre-built fiscal space, allowing expenditures to adjust gradually and avoiding abrupt, recession-deepening cuts. Without the SER, Poland quickly hits the SGP’s 3-percent deficit limit, leaving no room for flexible response and forcing immediate, procyclical reductions in spending, especially investment. The contrast underscores the central message: buffers created by disciplined expenditure rules can meaningfully soften recessions.

Other scenarios examine structural expenditure pressures, shocks to categories outside SER coverage, and unexpectedly strong growth. The results confirm that the SER’s effectiveness depends on broad coverage across general government spending, precisely why the 2024 amendments, which expanded the rule's scope and corrected weaknesses in forecasting assumptions, significantly enhance its performance. In all stress cases, debt levels remain lower and more stable under the SER, with visual simulations showing consistent downward trajectories compared to the rising or stagnant debt profiles under the NO-SER regime.

A Rule Aligned With Europe’s New Fiscal Era

The authors conclude that Poland’s SER aligns strongly with the EU’s 2024 reformed fiscal governance framework, which emphasizes sustained debt reduction, medium-term planning, and realistic budget constraints. The SER not only enhances debt sustainability but also provides a credible structure for countercyclical policy, allowing spending to remain steady during downturns while enforcing discipline during expansions. While improvements are still possible, especially in integrating stochastic debt-sustainability techniques used by the European Commission, the SER emerges as a highly credible institutional tool. For policymakers navigating an era of geopolitical uncertainty, aging populations, and rising investment needs, the SER offers a blueprint for how expenditure-based rules can anchor fiscal stability without undermining economic resilience.